Marillyn Hewson seeks to diversify Lockheed

NEW YORK — Lockheed Martin is best known as the $45 billion-a-year builder of the F-35 Joint Strike Fighter and other such war machines.

But as the wars draw down and defense money tightens, company CEO Marillyn Hewson has her sights set on everything from cybersecurity to alternative energy, hedging the company’s bets against the politics of austerity and the uncertainty of the congressional budgeting process.

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“We’ve moved into cyber capability, to energy, clean energy capabilities, and we’ll see more of that,” Hewson said in a wide-ranging interview here recently. “We’re engaged in hypersonics. We’re engaged in advanced manufacturing, advanced materials like 3-D printing or digital-manufacturing-type things. We’re engaged in just a range of things that I think will help transform our business as we move forward as those areas grow.”

Still, there’s reason to be skeptical that a company with 115,000 employees that makes 61 percent of its sales with the Pentagon can really diversify around the edges enough to truly transform itself in a post-war era in which every defense contractor is competing for a piece of a smaller pie.

“Things are going to get a lot tougher going forward, and her job’s going to get a lot more difficult,” said Bill Loomis, an analyst for Stifel Nicolaus who tracks Lockheed’s financial performance, “particularly if Congress doesn’t stop sequestration, which starts again in fiscal 2016. That $115 billion gap in fiscal 2016 and beyond that’s supporting current programs is going to have to come out of somewhere, including a lot of Lockheed programs like Littoral Combat Ship, F-35.”

Hewson, the first woman to head the defense juggernaut, acknowledges that she’ll have to balance the company’s brand as the world’s largest defense contractor with declining resources.

“We’ve been at war for 12-plus years, two different wars, and we’ve had all these challenges, and we’ve just worn stuff out,” she said. “We’ve continued to fly aircraft and [drive] trucks and other things that are really just worn out and need to be replaced, so that is a very big challenge for our customer.”

Hewson’s appointment at the end of 2012 came as a surprise when Chief Operating Officer Christopher Kubasik resigned for having a relationship with a subordinate — and she spent the first year of her tenure proving she deserved the job.

A 61 percent jump in Lockheed’s stock last year helped Hewson earn the trust of her investors and a realignment of the top F-35 executives went a long way toward fixing the communication woes that have plagued the fighter program. The company has “right-sized” in the past few years, cutting executive jobs and downsizing factories and managing to turn out successful financials even when faced with sequestration.

But Lockheed, which attributed 82 percent of its $45 billion net sales in 2013 to the government, can’t dodge the downturn forever.

As the war business declines, Lockheed’s already begun to look for business outside its current portfolio. The company acquired the Scotland-based transportation IT company Amor Group last September, and bought the German air traffic management company BEONTRA and the Massachusetts cybersecurity firm Industrial Defender in March.

Loomis said he expects the company to continue to look at smaller acquisitions in the $100 million to $300 million range. And Hewson has expressed willingness to make even some higher-risk acquisitions in the $1 billion range.

Now, more than 15 months into her gig and three months after taking the reins from her predecessor, Bob Stevens, as chairman of Lockheed’s board of directors, Hewson — a team player who’s packed up and moved eight times in her 31 years with the company — is looking forward.

“Any business needs to be staying abreast of their external environment and the markets that they operate in,” she said.

Norm Augustine, a former Lockheed chief executive who oversaw the Lockheed and Martin Marietta merger in 1995, says he sees parallels between the budget situation Hewson is facing now and his tenure during the downturn in the 1990s that led to Lockheed’s consolidation.

That’s not to say that another large-firm merger is likely, but Augustine said it’s clear that as defense spending declines, there’s an understanding in the industry that executives need to think differently than they have in booming budget times to be successful.